Introducing the Impact Investing Benchmark

1 Introducing the Impact Investing Benchmark 2015 Table of ContentsExecutive Summary iMethodology 2 Sample Characteristics 4 Impact Investing Benchmark performance Analysis 8 Conclusion 19 Appendix: Screening Process for Fund Impact Intent 20 SidebarsImpact Themes 3 Challenges and Caveats 6 Definitions of Calculation Metrics 9Ta b l e s 1. Inclusion Criteria 2 2. Fund Size, Vintage Year, and Strategy 4 3. Sector and Geographic Focus 5 Figures 1. Capital Invested: Four-Quarter Rolling Average 8 2. performance by Vintage Year 9 3. performance by Vintage Year and Geography: EM Funds 10 4. performance by Vintage Year and Geography: EM ex Africa Funds 11 5. performance by Vintage Year and Geography: DM Funds 12 6. Multiples by Geography 13 7. performance by Vintage Year and Fund Size: $100 Million 14 8. performance by Vintage Year and Fund Size: > $100 Million 15 9.

2 Multiples by Fund Size 16 10. Distribution of Fund IRRs Net to LPs 17 11. Distribution of Fund IRRs Net to LPs by Quartile 18 Executive Summary i Cambridge Associates and the Global Impact Investing Network have collabo-rated to launch the Impact Investing Benchmark , the first comprehensive analysis of the financial performance of market rate private equity and venture capital Impact Investing funds. While the Impact Investing industry is in an early stage of development, it is poised for growth. One of the chief barriers to industry advancement remains a paucity of robust research on financial perfor-mance. Credible data on risk and return can help both existing and future Impact investors better identify strategies that best suit their desired social, environ-mental, and financial criteria. At launch, the Impact Investing Benchmark comprises 51 private invest-ment (PI) funds. Impact investments are investments made into companies, organizations, and funds with the inten-tion to generate social and environmental Impact alongside a financial return.

3 Funds in the Benchmark pursue a range of social Impact objectives, operate across geographies and sectors, and were launched in vintage years 1998 to 2010. Despite a perception among some inves-tors that Impact Investing necessitates a concessionary return, the Impact Investing Benchmark has exhibited strong perfor-mance in several of the vintage years studied as of June 30, 2014. In aggregate, Impact investment funds launched between 1998 and 2004 those that are largely realized have outperformed funds in a comparative universe of conventional PI funds. Over the full period analyzed, the Benchmark has returned to investors versus for the comparative universe, but much of the performance in more recent years remains unrealized. Impact investment funds that raised under $100 million returned a net IRR of to investors. These funds handily outperformed similar-sized funds in the comparative universe ( ), Impact investment funds over $100 million ( ), and funds over $100 million in the comparative universe ( ).

4 Emerging markets Impact investment funds have returned to investors versus for developed markets Impact investment funds. Those focused on Africa have performed particularly well, returning In all private Investing , manager selection and due diligence are critical steps in the investment process and are important factors in obtaining superior returns and in risk management; Impact Investing funds are no exception. There are funds within the Impact Investing Benchmark that have performed in line with top quartile funds in the comparative universe, showing that market rates of return for Impact invest-ments are possible and also reinforcing that manager skill is paramount. Creating and analyzing benchmarks for private investments, especially for a younger, emerging portion of the market such as Impact Investing , poses a number of chal-lenges. Difficulty acquiring private fund performance data and strict inclusion criteria limited our ability to amass a large dataset, which presented data analysis limitations that are unavoidable at this stage.

5 Cambridge Associates will produce an ongoing quar-terly Impact Investing Benchmark report to track the industry over report was produced by Cambridge Associates, a global investment fi rm and one of the world s leading developers of fi nancial performance benchmarks, in partnership with the Global Impact Investing Network, an organization dedicated to increasing the scale and effectiveness of Impact Investing worldwide. It presents fi ndings from the fi rst comprehensive analysis of fi nancial performance in Impact Investing . To maintain a manageable scope, this report specifi cally evaluates the performance of market rate private investment funds in the Impact Investing space. This report also marks the launch of the fi rst ever fi nancial performance Benchmark of private Impact Investing funds, which Cambridge Associates will maintain and update on a quarterly basis going decision to focus this report on PI funds was motivated by several factors.

6 Investing via funds is a common strategy for Impact investors of all types and sizes, including development fi nance institutions, foundations, commercial banks, pension funds, insur-ance companies, and family offi ces. Nearly 75% of investors that responded to the Morgan and GIIN global Impact investor survey, Eyes on the Horizon: The Impact Investor Survey, published in May 2015, indicated that they invest via intermediaries (regardless of whether they also invest directly in companies). Additionally, within fund invest-ments, private equity and venture capital are particularly common vehicles. Out of 310 Impact Investing funds profi led in the ImpactBase Snapshot, published in April 2015, 153 are private equity or venture capital vehicles. Cambridge Associates Mission-Related Investing (MRI) database is further evidence of private equity s prevalence in Impact Investing : of the 579 private MRI funds Cambridge Associates tracks, 392 are private equity or venture capital funds (the remainder are private real assets funds).

7 Introducing the Impact Investing BenchmarkFor the sake of brevity, the phrases private investments and Impact Investing Benchmark are used throughout this report. However, as explained in detail in the Methodology section, the Benchmark only includes data from private equity and venture capital funds that target risk-adjusted market rate returns and social Impact objectives. Accordingly, the Benchmark does not include private debt funds, funds targeting environmental Impact objectives, or funds seeking below market returns, all of which are also prevalent strategies in the Impact Investing landscape. Our use of these simplifying phrases, therefore, is not to imply that Impact Investing is restricted only to private equity and venture capital; rather it is to enable simple narrative 2 MethodologyFund selection Impact investments are defi ned by their intent to generate a social and/or envi-ronmental return in addition to a fi nancial return.

8 The focus of this report is PI funds1 with a social Impact objective to allow for a clear aggregation of similarly motivated funds. Future research may look at other vehicles and/or funds with an environ-mental Impact research team identifi ed a list of relevant Impact Investing funds through existing databases maintained by various credible networks worldwide, including the GIIN s ImpactBase, CA s Mission-Related Investing (MRI) database, the Community Development Venture Capital Alliance (CDVCA), the European Venture Philanthropy Association (EVPA), ImpactAssets 50, and Opportunity Finance Network (OFN).2 This process enabled the research team to identify those funds likely 1 private investment funds include unlisted, fixed term limited partnerships that invest equity and subordinated debt into private companies. The three sub-asset classes in focus for this report are Growth equity , Venture Capital, and Mezzanine.

9 Please note that the Impact Investing Benchmark is not an asset class Benchmark . Funds within the Impact Investing Benchmark also contribute to other Cambridge Associates Further information regarding the Impact screening processes of these organiza-tions can be found in the have the intention to create positive social Impact , as indicated by their membership in these Impact -oriented networks. The fund list was further refi ned based on the inclusion criteria in Table 1. If the Impact intent of a fund was unclear, the research team conducted additional detailed review to determine whether the fund could be unique feature of Impact investments is that not all investment opportunities aim for market rates of risk-adjusted return. While the pursuit of a fi nancial return is central to Impact Investing , some investors by virtue of their strategy seek to achieve conces-sionary returns. Again, in the interest of focusing on a relatively uniform set of data, this research restricts itself to those funds that target risk-adjusted market-rate returns.

10 Specifi cally, this means private equity and venture capital funds with a target net internal rate of return (IRR)4 of 15% or higher, and mezzanine funds with a target net IRR of 10% or higher. These cut-offs are consistent with most conventional PI funds. Fortunately, there were no close calls when determining the universe of 3 Note that while this study screened for Impact intention of funds, it does not include data on Impact See Definitions of Calculation Metrics on page 1. Inclusion CriteriaIncludedExcludedPublic fundsOpen-ended fundsPrivate equity : Growth private equity : Buyout private equity : MezzanineFixed IncomeVenture CapitalReal AssetsIntent to generate environmental Impact onlyESG / negative screening Target returns "Market rate": target 15%+ net IRR for growth and venture; 10%+ for mezzanine Below-market funds: target concessionary returns that are lower than our market rate expectationsFund type private , closed-ended funds available to institutional investors Asset class/strategy Impact intent Intent to generate social Impact Methodology 3 Impact Themes This report does not measure the social Impact achieved by funds within the Impact Investing Benchmark .